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Johannesburg - Barclays Africa dropped the most in seven weeks on speculation the lender’s London-based parent plans to sell it’s 62.3% stake as part of a plan to exit operations on the continent.

This story was updated at 13:15.

Shares in Barclays Africa slid as much as 6.8% to R135.02, the biggest decline since January 11. The securities were trading 4.5% down at R138.39 as of 12:39.

The company led losses on the seven-member FTSE/JSE Africa Banks Index, which dropped 2.4%. The shares had their biggest decline since January 11 to lead losses among the 40 largest securities on the Johannesburg Stock Exchange on Monday.

A review of the UK lender’s operations on the continent, where it has had a presence for more than a century, comes as South Africa’s economy struggles to avoid recession and President Jacob Zuma’s administration scurries to avoid a credit-rating downgrade to junk in the face of a currency that has lost more than half its value over the past five years against the British pound. South Africa, where consumers are under pressure amid rising interest rates and accelerating inflation, accounts for about 80% of Barclays Africa’s profit.

“We tend to consider ourselves and Africa as a paradise for investors - I think it is the exact opposite,” said David Shapiro, a director at Sasfin Securities, a stock broker. The possible sale “has to do with poor growth prospects here” and the falling rand, he said.

Plan to exit

Barclays plans to exit its African business as part of an overhaul of the firm led by CEO Jes Staley, a person with knowledge of the discussions said last week.

Staley will probably announce the decision on Tuesday as he presents the company-wide review after the board agreed in principle that the business was no longer a strategic fit, said the person, who asked not to be identified because the discussions are still private.

The board of Barclays “continues to evaluate its strategic options” regarding its interest in Barclays Africa, the lender said in a statement on Sunday.

The African unit said separately on Monday that it’s well capitalised and has a track record of strong returns. While Barclays Africa, formerly known as Absa Group, has historically been more profitable than the bank’s other three main divisions, it’s been hurt by the falling rand, which has weakened 27% over the past 12 months.

We would prefer that Barclays retains its stake - Citigroup

“We believe the Barclays Africa stake offers long-term ‘option value’ on both growth and capital flexibility,” Citigroup analysts including Andrew Coombs and Ronit Ghose said in a note on Monday. “We would prefer that Barclays retains its stake in Barclays Africa, with an aim to increase it over time.”

While Barclays Africa has historically been more profitable than the bank’s other three main divisions, it’s been hurt by the falling South African rand when translated back into hard currency.

The National Treasury and South African Reserve Bank “may be annoyed with Barclays” should it sell the investment, said Garth Mackenzie, founder of TradersCorner.co.za, an independent trader.

“To be honest I don’t think the local authorities are blameless here. They have after all driven the country to the edge of a cliff and a potential downgrade. I’m not sure Barclays were expecting that when they made their investment here.”

Compelling value

The Johannesburg-based stock offers “compelling value,” trading at eight times earnings and a dividend yield of 7%, said Adrian Cloete, a banks analyst at PSG Wealth, a Cape Town-based money manager with more than R300bn in assets.

The British bank also owns operations in Egypt and Zimbabwe. It was going to sell those two units to the South Africa bank, but the deal fell through in December because of price.

If there is a sale, South Africa’s Public Investment Corporation (PIC), which administers the bulk of government’s pension fund money, “will pick up a slice,” said Simon Brown, founder of JustOneLap, an investment and trading website.

While there’s been speculation that former Barclays CEO Bob Diamond’s Atlas Mara might be interested, the London-based company doesn’t have “anywhere near enough capital. So not many options, except maybe another Chinese bank.”

PIC interested in raising Barclays Africa stake

The PIC said on January 25 that it would be interested in increasing its stake in Barclays Africa.

“The fact that Barclays Africa has a strong platform across the continent means that it would be a good partner for the PIC as it rolls-out its strategy in Africa,” said PIC CEO Dan Matjila. There is no such deal being considered at the moment, he said at the time.

The PIC, with stakes in most of South Africa’s biggest companies, along with investments in Togo-based Ecobank Transnational and Dangote Cement of Nigeria, already owns about 6% of Barclays Africa.

“We are fairly satisfied with how the company is run,” Matjila said, declining to comment on what size of stake the PIC would like to have in the bank.

Finding a new buyer will be challenging

Fund manager Korner Perspective director Graeme Korner said there was little appetite in the market for a major banking transaction and that finding a new buyer with a good balance sheet was going to be challenging.

"Unless there is a really powerful player that has a deep balance sheet and can add strategic value to Barclays Africa its not in the interest of minority shareholders to see it passed on to somebody else," he said.

"BAGL (Barclays Africa) confirms that any announcement relating to PLC’s shareholding in BAGL does not impact the shareholding and ownership of these operations," it said.

Barclays Africa's Kenya unit assured customers that it would not be shutting down and that their accounts were safe.

"I assure you that your money is safe with us and you should not be concerned about the operation of your account," Managing Director Jeremy Awori said in a statement.

Seeking growth

Barclays first bought a
controlling stake in the South African lender in 2005. It was searching
for growth outside of the UK where lending was slowing and wanted to
consolidate its businesses across Africa. It was the biggest acquisition
by Barclays outside of the UK at the time.

“With an independent
board and a separate listing on the Johannesburg Stock Exchange we are
deeply rooted in Africa and remain firmly in control of our future,”
Maria Ramos, CEO of Barclays Africa, said in the statement.

With
over R1trn in assets and more than 12 million customers in 12 African
countries, any announcement about the British bank’s shareholding won’t
impact the ownership of the operations across the continent, Ramos said.